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Adding 2% or more of additional margin drives significant bottom-line results say advertising agencies: EY study

28-October-2015
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Adding 2% or more of additional margin drives significant bottom-line results say advertising agencies: EY study

84% of agency respondents believe they could achieve margin improvement of at least 2% with more robust project and resource management processes, according to a recently concluded study by EY with global creative and digital advertising agencies, titled ‘What’s next in margin improvement?’.

While 90% agencies have project managers, only 9% of those say that their project managers are formally trained in project management. Similarly, while 65% of agencies have resource managers, only 12% of those resource managers are trained in talent management or resource optimization. With the increased diversity of skills required, use of freelancers, crowd-sourced creative models and tech providers, there is an even higher demand for robust resource and project management.

Additionally, the advertising business is seeing a fundamental change – from paying for people, clients are now paying for the output. The move away from the retainer model to project-based fees is also putting pressure on margins. The challenge is typically internal pertaining to poor infrastructure and managing talent. However, in this change of economic models, lies a sizable opportunity for agencies that have the capabilities to find value in such flexible arrangements, according to EY. Only 21% of respondents saw new economic models and performance-based fee structures as an opportunity.

“The advertising industry is at a turning point in its cycle where the agencies will need to evolve their project and resource management skills in order to continue to be sustainable. Talent is their core asset and they should therefore have clear guidelines and processes, even for freelancers. Agencies will need to take into account the clients, employees and their self-growth when designing their strategy. A one-size-fits-all approach may not be profitable. They must be flexible depending on the complexity of projects and clients,” said Bharat Rajamani, Director and Solution Champion, Marketing and Advertising Risk Services, EY.

EY recommends that agencies build holistic capabilities that allow them to mature in the areas of project and resource management. There must be frequent communication between the account teams, finance, and project and resource management. They will have to optimize technology to integrate key processes and aim for better forecasting of resource requirements. Integrated data will enable real-time decision making. A purpose-led phased approach to project and resource management will foster profitable business growth.

The survey included inputs from nearly 50 agency executives from leading global agencies and represents combined revenues of approximately $58 billion.

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